The Pros and Cons of Universal Deposit Insurance

The failure of Silicon Valley Bank (SVB) has led regulators and banking experts to consider changing the deposit-insurance system so that most or even all deposits in ordinary banks are covered by insurance. Federal regulators have already invoked emergency measures to cover all uninsured deposits at SVB and, implicitly, at any other bank that might fail. Some members of Congress are drafting legislation to formally change a deposit insurance system that still resembles the Depression-era stopgap that first went into effect in 1934. Universal deposit insurance, which Congress would have to establish through legislation, might be a businesslike solution that works the way most people think of insurance: by charging a fair price for comprehensive coverage that provides robust guarantees for everybody, with no freeloaders.